Show Us the Money

Colleges and universities frequently tout the money they spend on new scholarships and buildings, but when it comes to investing the endowment, the waters are much murkier.

A new report[1] from the Sustainable Endowments Institute found that only trustees and senior administrators know how the endowment is invested at two-thirds of the 143 colleges and universities that responded to the question in a survey.

Seventy-three percent of the 173 institutions that replied to another question said they do not exercise their prerogative to vote directly as shareholders, or “actively vote their proxies,” regarding decisions made by companies the institutions invest in. Of the 19 percent that said they do actively vote their proxies, only 5 percent include student input in making such decisions.

Mark Orlowski, executive director of the Sustainable Endowments Institute, said that many colleges leave the voting to “money managers on Wall Street,” and often “blindly vote with [company] management. Blindly putting faith in management is not the best way to manage proxy voting decisions.”

Orlowski added that investors demanding information have been the sources of much progress in corporate America that could make future Enron-like debacles less likely.

Students at some institutions have called for greater investment transparency this year, to help ensure socially responsible investing. Some institutions – including Boston, Brandeis, Brown, Harvard, Stanford and Yale Universities, the University of California system, and Smith and Amherst Colleges – have publicly declared that they will not invest in companies with links to the government in Sudan, because of the government’s role in the genocide in Darfur.

Orlowski pointed out that some institutions make great efforts to push environmentally friendly initiatives on campus, but then may not disclose endowment investments or how they vote on climate change and related shareholder resolutions.

Scott Hood, a spokesman for Bowdoin College, said that it is very important to Bowdoin that the endowment, which supports financial aid, among other things, is invested responsibly, but that “it’s a competitive landscape” and the college’s investments are “proprietary information.”

Sally Baker, secretary of the corporation and executive assistant to the president at Colby College, said that Colby is behind the curve in terms of transparency, but that it’s largely because nobody asked until recently.

Baker said that a student from Burma asked a few months ago “whether we have any investment in Burma.” The trustees added to that inquiry by asking whether the college has investments in Sudan. Baker said that Colby’s endowment manager is now looking into it.

Baker used to work at Harvard, which has a shareholder responsibility committee, and she said that Colby is “not like Harvard and Yale, where we have a lot of unilateral large investments. We have a lot of pooled small funds and hedge funds.” She added that finding out exactly what Colby is invested in on a given day is not a trivial task.

Many hedge fund managers consider their funds proprietary, and will not tell a college where their money is. “Hedge funds have, to some extent, driven returns on endowments in recent years,” said David Bass, director of government relations at the Council for Advancement and Support of Education. “Hedge funds, by their very nature, tend to be un-transparent. They change their position so quickly.”

Baker said that Colby’s investment office is only one person, and that “we haven’t figured out how to have this information at our fingertips.” “The good news,” she added, “is that we’re finding that the stuff we can track is not invested in ways that would disturb the students who have asked us.”

Bass added that disclosure often isn’t a matter of merely opening the books. “I suspect in some cases it’s largely a logistic challenge,” Bass said. “It’s not like endowments are invested in a half dozen funds. They’re probably invested in thousands of individual assets with a lot of outside managers involved. It’s a moving target.” He said that an institution that tries to figure out where all the money is might be committing significant time and resources.

Some institutions have committees organized to get input from students, faculty members, administrators, and alumni about investment decisions.

The Sustainable Endowments Institute named 10 institutions that have active shareholder advisory committees that include students: Brown, Columbia, Dartmouth, Harvard, Stanford and Yale Universities; the University of Pennsylvania, and Williams, Pomona, and Swarthmore Colleges.

In 2004, Dartmouth began publishing an annual report, available to anyone online[2], from its Advisory Committee on Investor Responsibility. Dartmouth’s proxy voting record is included in the report.

Some institutions, like Columbia, have held forums do discuss investments with students, staff and faculty members, and alumni.

Orlowski said that more institutions have created committees in recent years, and some are in the works. He said he’d like to see colleges take the opportunity to make endowment investment a teaching tool. “I think as more people understand the subject and the opportunities,” he said, “we’ll see a trend towards a lot more activity.”